20th Jul 2018

Scrap looms over British budget rebate

A fierce battle between member states over money is brewing as leaked documents from the European Commission have revealed plans to end the UK's special budget rebate and make London the biggest net contributor to EU funds.

The proposals - reported in Le Monde - are part of the Commission's plans for the budgetary period from 2007-2013, drawn up by budgetary commissioner Michaele Schreyer.

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In the draft document, Ms Schreyer says, "The UK is going to become the smallest net contributor to the EU budget ... as a result, the current system of a correction reserved exclusively for the UK cannot continue".

Instead, Brussels proposes a "general refund mechanism", which would share out the rebate equally between all member states whose contributions to the EU exceed 0.35 percent of their gross domestic product (GDP).

This would mean that the UK would become the largest net contributor to EU funds, relative to the size of its economy, paying 0.51 percent of its GDP, compared to 0.35 and 0.31 percent for Italy and France respectively.

Alarm bells

The idea of losing the three billion euro rebate - famously won by the then prime minister Margaret Thatcher in 1984 - will cause great concern in London.

Current prime minister Tony Blair has vowed to defend the rebate and he knows that if Brussels is seen to be taking money back from the British taxpayers, his battle to win over a sceptical public on the European Constitution will be even harder.

British commissioners Neil Kinnock and Chris Patten have warned Commission President Romano Prodi of this fact and the draft proposals may be watered down before they appear officially next Wednesday (14 July).

Blast from the past

However, the news is likely to be greeted with cheers in other European capitals.

Many EU leaders see the British rebate as a relic of the past, dating back to a period when Britain was economically weaker and Germany in particular was economically stronger.

The rebate, they argue, was also agreed when agricultural subsidies - from which Britain derives little benefit - were a proportionally larger part of the budget.

But Britain is now the second most wealthy EU state after Luxembourg, judged by GDP per capita, and agricultural subsidies have declined as a proportion of the whole budget.

And the UK's rebate in the next budgetary period would jump from around four billion euro to seven billion euro.

Finally, the Commission is expected to stress that the UK will still pay less under the generalised refund mechanism than they would if the rebate system was scrapped altogether.

One battle in wider budget war

British officials emphasise that the budget rebate is not for discussion. Furthermore, decisions over funding have to be taken unanimously, raising the spectre of a British veto.

And the battle over the rebate - although likely to be acrimonious - is merely one battle in a wider war over how the EU should be funded.

Brussels will cross swords with six member states (the UK, Germany, France, the Netherlands, Sweden and Austria) over the level of spending in the next budgetary period. The Commission argues that increased expenditure is required for the EU's ambitious political plans, the member states want the budget to be capped.

Controversy is also anticipated over the EU's "own resources", with any move towards an EU tax to be bitterly opposed by the UK.

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